US public opting for pragmatic idealism over wishful thinking

By Robert Shiller

During the US’ recent presidential election campaign, public opinion polls consistently showed that the economy — and especially unemployment — was voters’ No. 1 concern. The Republican challenger, Mitt Romney, sought to capitalize on the issue, asserting: “The president’s plans haven’t worked — he doesn’t have a plan to get the economy going.”

Nonetheless, US President Barack Obama was re-elected. This outcome may reflect the economy’s slight improvement at election time (as happened when former US president Franklin Roosevelt defeated the Republican Alf Landon in 1936, despite the continuing Great Depression).

However, Obama’s victory might also be a testament to most US voters’ basic sense of economic reality.

Economic theory does not provide an unambiguous prescription for policymakers. Professional opinion in macroeconomics is, as always, in disarray. Because controlled experiments to test policy prescriptions are impossible, there will never be a definitive test of macroeconomic measures.

Romney had no miracle cure either, but he attempted to tap into voters’ wishful thinking by promising to reduce the size of the government and cut marginal tax rates. That would work if it were true that the best way to ensure economic recovery were to leave more money on the table for individuals. However, the electorate did not succumb to such illusive thinking.

The idea that Obama lacks a plan is right in a sense: nothing he has proposed has been big enough to boost the US economy’s painfully slow recovery from the 2007 to 2009 recession, nor to insulate it from shocks coming from Europe and from weakening growth in the rest of the world.

What Obama does have is a history of bringing in capable economic advisers. Is there anything more, really, that one can ask of a president?

And yet US presidential campaigns generally neglect discussion of advisers or intellectual influences. Although a president’s advisers may change, one would think that candidates would acknowledge them, if only to suggest where their own ideas come from; after all, realistically what they are selling is their ability to judge and manage expertise, not their own ability as economists.

However, this time, too, there was no mention by name of any deep-thinking economist, nor of any specific economic model.

Obama originally had a “wonder team” of economic advisers, including Lawrence Summers, Christina Romer, Austan Goolsbee and Cass Sunstein. However, they are gone now.

Today, the most powerful economic adviser remaining in the White House is Gene Sperling, head of the National Economic Council (NEC), the agency created by former president Bill Clinton in 1993 to serve as his main source of economic policy (somewhat shunting aside the Council of Economic Advisers). Because this position does not require congressional approval, the president may appoint whoever he wants, without having his choice raked over the coals in the US Senate.

That is why Obama could appoint the highly talented, but politically unpopular Summers, the former president of Harvard University.

Sperling is not nearly so well known as Summers. However, his record of influence in government is striking; indeed, he has been at the pinnacle of economic policymaking power in the US for almost a decade. He was the NEC’s deputy director from its beginning in 1993 until 1996, and its director from 1996 to 2000. Obama reappointed him as head of the NEC in January last year.